Citigroup being pressured

Tuesday

Nov 27, 2007 at 12:01 AM

Shareholders are fed up about secrecy over debt.

The Associated Press

NEW YORK - Calls for more transparency at Citigroup Inc. grew louder Monday when HSBC Holdings PLC said it would put two funds with mortgage exposure on its balance sheet and spend $35 billion to bail them out.

Citigroup said it has no plans to mimic HSBC's move. So far, Citi has committed $10 billion in liquidity to the seven structured investment vehicles it manages on an "arm's length'' basis, and has kept them off its balance sheet - meaning Citi has not been counting the SIVs' debt as its own.

That strategy may end up backfiring, though, some industry watchers say, because shareholders, fed up with remaining in the dark about how much risk the largest U.S. bank holds, are selling off.

"Citi is in what I'll call a reputation race,'' said Ed Ketz, associate professor of accounting at the Smeal College of Business at Pennsylvania State University and co-author of a new book called "Fair Value Measurements.'' "It is competing with HSBC and others in terms of who can be trusted.''

HSBC is betting that taking ownership of Cullinan Finance Ltd. and Asscher Finance Ltd. - SIVs that in total have $45 billion in assets - will restore investor confidence.

"I like what HSBC has done. It's a very simple solution. It's one that's transparent. We can see the promise of liquidity. That's something that, to me, would create a feeling of trust,'' Ketz said. "Citi could go a long way in following this example.''

SIVs, which JPMorgan Chase & Co. CEO Jamie Dimon recently predicted will "go the way of the dinosaur,'' have hit snags this year. Demand for the short-term assets they must sell to fund the buying of longer-term debt has vanished as the U.S. housing market has imploded.

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